Famous Brands Limited (FBR) Earnings Call Transcript & Summary

Good morning. Thank you very much, and welcome on behalf of myself, Darren, and Deon Fredericks, our Group Financial Director, to our end August 2022 interim financial results presentation, or H1, as we'll refer to in some of the presentation. I trust you're familiar with the two of us. If it is your first time, welcome and hope to get the it is your first time, welcome, and I hope to get the opportunity to get to know you through individual consultations. Thank you for the interest that you've shown to register for this audio webcast. It really is great to host you and to share these results. Particularly welcome to the Board Members of Famous Brands that have dialed in, and to all of the Famous Brands family on this audio webcast. It really is great to present our results to the whole business at one particular time. And these results, we're particularly proud of, partly because they're probably our simplest results to explain in a couple of years and starting to get back to a more normalized base again, which is really pleasing in terms of the type of business that we have. We'll split the presentation over the -- with the hour roughly into about 50 minutes between myself and Deon, leaving about 10 minutes for questions up to the hour. Please excuse the short statements at times. We will run through some of the slides quite promptly, trying to share as much information as we can with you. But the two, I suppose, unusual theme shadowing the period, and that's really the COVID-19 recovery, and we'll all be glad to put that behind us, as well as reference to the GBK liquidation dividend. So those are probably the two anomalies in the results, and we'll talk through those. But none of that takes away from the fact that we believe this is a solid set of results for the 6 months period and absolutely proud to present these on behalf of everybody at Famous Brands. In terms of the agenda, I'm going to talk through item 1, being operating context, and I'll then hand over to Deon who will go into a fair bit of depth on the financial results. I'll come back on the performance review, and then the two of us will take questions, which will be put to us by Ntando Ndaba, our group risk executive. And just a reminder that the questions block is on the top left-hand side of the screen that you see in front of you. So feel free to put those questions in during the presentation, if you wish, or at the end, and Ntando will prioritize those and put those to us independently. Just in terms of the operating context, I want to talk you through a few broad themes. But it's very clear that we've lived through a trading half of less COVID impact than we have experienced. Particularly H1 of this year was not a perfect half, though, and there is an element of COVID restrictions in here. So whilst we are in October, and we may have short memories, up till the back end of May, things were still fairly tight in our industry. In the 23rd of June, really, somebody switched the lights on in terms of people seeing life differently without masks on. We'll try and share a few insights about where customers are at right now. And we hope that this will give you some insights in terms of the balance of the year and what to look forward to in H2 as we approach our peak period. From a group perspective, we believe that we remain the leading branded franchise food services business in Africa, and we continue to post a strong COVID recovery, which I think is important given the conversations that we had during COVID. We're a high-performing team with a high-performance culture and continue to drive hard. Our business model is strong with a very strong trading record as a JSE-listed company. And in terms of our proposition, which is really the lifeblood of our business, we are a franchisor that provides a livelihood for franchise partners, and we believe we provide a quality solution for our franchise partners. That's underpinned by a strong portfolio of brands across various markets, supported and underpinned by some company restaurants, which are particularly used in seeding new markets and seeding new concepts, but we primarily are a business model driven by franchising and underpinned by strong brands. But we support it through a manufacturing environment that supports us through licensed product and development on that through 5 wholly-owned plants and 5 partially owned plants with joint venture partners. And we really believe that, that route-to-market through logistics for manufacturing to our brands is superior and really gives our franchisees a competitive advantage and certainly helps us to manage the ups and downs of the volatility in the supply chain, which has been particularly prevalent over the last 12 months. So you can't avoid the geopolitical and socioeconomic factors that we all face. I'm not going to dwell too much on those. I think you read about them every day. Particularly prevalent in our industry is the negative impact on South Africa, which is our key and fundamental market. The high inflation effects of food, particularly impacting the restaurant industry as well as power, and that is a knock-on effect to our consumers. There's absolutely no doubt that the energy challenges, which go beyond just load shedding, also the impact on fuel costs, which is now a secondary driver of power, are having an impact on our business. And of course, the flooding in KwaZulu-Natal during this period wasn't just an event that happened, but it's got knock-on effects in terms of the socioeconomic factors and trading factors in our business. The industry remains competitive. It's fiercely competitive. We're all suffering with rising input costs. The one positive is that attractive new sites are becoming available as the retail landscape changes and we need to make sure we adapt to that. And technology is ever present in our industry as in most, and there's an adoption of that by our consumers. And we really need to make sure that we are there and ever present in terms of managing the technology effects on our industry. Consumer behavior is definitely pronounced in this H1 where we've seen a return of -- to bums on seats, and that really has had a benefit for us. And there's also quite a dichotomy in the industry where people are in search of healthy eating and, at the same time, looking for indulgent food choices as they come out of the depths of kind of COVID and having to get back into going out and socialize and greet again. And there's definitely a greater demand for businesses and brands that adapt to environmentally friendly practices, and we need to make sure we're at the forefront of that, too. The impact on the restaurant industry specifically over this particular period has seen a definite pressure on margins, particularly driven by food inflation. It's -- we're definitely seeing difficult conditions for single operators, and we're noticing that even in our own business that the multiple operator model is far more shielded and gives the operator the ability to leverage their position. And that has resulted in what would be seen as menu prices increasing above the norm. And I say the norm, if you think about where we've been in the last few years of a low food inflation environment, those prices are starting to get passed through the same as we're starting to see in the retail environment. From our perspective, we think that this is an opportunity to capitalize on attractive locations. We've taken actions to alleviate supply chain challenges across the board, driven by that pressure on margin, through menu engineering, helping to manage margins and always the drive on value offerings without eroding your brand equity, underpinned by strong marketing campaigns. We think we've managed our cost base well both at our level and at franchise level, trying to make sure we're not passing costs down the chain. And the investment in consumer-facing technology continues. We need to make sure that whilst we're not a tech company, we're embracing the change in the consumers' feeling and making sure that we are putting ourselves in the right space. And all of this while continue to execute our sustainability strategy is very, very important as we all know that the world is changing. So that has really resulted in us being able to present some financial results, and I'm going to ask Deon to take you through some more detail in the numbers that you may not have picked up in the long-form announcement. So Deon, over to you.

Thank you, Darren. Good morning, ladies and gentlemen. It is my pleasure to present Famous Brands results for the interim period ending 31st August '22. As they say, it's always much easier to present a good set of results. We believe that this is a great set of results, taking into account that the current operating environment in which we operate, which is characterized by global upheaval, and SA is not excluded from this. This creates significant operating challenges for us due to the uncertainty, and we had to navigate some material events that impacted the business through the whole business chain at the end of the day. These include, as you would know: lower growth expectations, as well as consumer confidence impacting the economic recovery; and then, ultimately, consumer spending, rising inflation; and then specifically of interest to us, food inflation, which peaked at 9.7%, and these impact our cost levers. Then we see in general country-wide disruptions. This is unpredictable and impact specifically our delivery channels, and then load shedding as well as water shedding disrupting specifically our manufacturing operations. And not to forget, as Darren has already indicated, the impact of COVID included 3.5 months of COVID impact in this set of results. However, I'm pleased to announce that these results indicate the further increase in the profitability of the company, with profits increasing by 140% to ZAR 277 million. The group continued with its strong recovery. And as such, we are confident to declare interim dividend of ZAR 1.30 for the period. If we look at specifically the highlights that we would like to share with you, our revenues increased by ZAR 575 million mainly as a result of improved volumes, taking revenue to ZAR 3.6 billion. We reduced our debt by ZAR 150 million, and this was voluntary again in the current period, and our net debt reduced from 4.4x to just below 2x. This enable us to consider a dividend of ZAR 1.30, which sets a new base for our dividend payments. You would remember that in August 2019, we reset the dividend at ZAR 0.90. Growing the 2019 dividend by 10% per year would have meant that we should look at a dividend of around ZAR 1.20 or 120 cents. We are ever comfortable to reset the dividend at 130 cents at this stage. We continue with the highlights. And revenues increased by 19%, which enable our operating profit to increase by 77% to ZAR 393 million from a base of the previous year of ZAR 222 million. The overall performance increased our operating margin to 11% from 7.4% last year, excluding the GBK dividend operating margin would have been 8.9%. Margins are however still under pressure and has not fully recovered to pre-COVID levels. This is mainly due to significant cost increases, specifically in the following areas: fuel, distribution, property costs, and repairs and maintenance. If one considers that our revenues increased by 19%, whereby these specific items that I've listed now increase on average by 33%, clearly indicates the cost pressures that we experience, and we're managing the best we can to ensure that it doesn't impact the end consumer to that extent. In addition, we continue to provide support in terms of loyalty breaks, and this is provided on a selective basis. Our HEPS improved to -- by 121% to ZAR 2.15 cents from a previous ZAR 0.97 as a result of increased volumes and a slight improvement in our gross profit margin. As such, our cash generated from operations improved 73% to ZAR 552 million from ZAR 319 million previously, and this enabled us to reduce our net-debt-to-EBITDA by 55%. And I'll share the income statement with you now. Revenues increased to ZAR 3.6 billion. And as I would indicate later to you, all segments contributed and the main contribution from, as you would expect, logistics with ZAR 366 million. Gross margins, as I've already indicated, slightly up from 44.3% last year to 44.7% this year. Other income increased significantly to ZAR 97 million. The main reason, as you would expect is the dividend at the GBK dividend, but also ZAR 14.4 million that we received for insurance claims. We continue on our journey to improve disclosure and presentation as we've done at year-end, and we've taken those changes into the interim financial statement as well. In this case, we have split previous selling and administrative expenses between administration, marketing and operational expenses to give you a little bit more color in terms of the key cost drivers. Admin expenses decreased by 8%, mainly as a result in the reduction of professional fees of ZAR 8 million and legal fees of ZAR 1 million. Marketing expenses increased 23%, in line what you've seen on the revenue of 19%. And as you would expect, marketing expenses would usually be first incurred and revenue will flow thereafter. Operating expenses increased by ZAR 99 million, mainly as a result in increase in salaries of ZAR 68 million. And the 3 drivers or 4 drivers for this is increase of 4.5% across the base as well as the increase in activity required additional heads that we appointed. We've also invested ZAR 9 million in interns. And in certain cases, we need third-party contractors, which also contributed to that. We've also seen a significant increase, as you expect, in diesel for vehicles and equipment to run the generators. And that added additional ZAR 10 million to the cost line for this period. Our U.K. business is experiencing what we say a perfect storm now with the increased cost of living, including a 10% increase in inflation. We've reviewed the current operations, also the difficult environment, all the negative events in this case. And based on the information at the end, now we've provided for ZAR 31 million impairment of goodwill. Net finance costs decreased by 45%. And the 3 reasons for this is, as you see in the presentation, we've renegotiated our debt and was, through the process, able to improve our margins. We've also made, as already indicated, voluntary repayments. And ultimately, we had higher cash balances, and at the same time, the interest rates increased. So those were the key drivers from that perspective. Furthermore, we unwind the interest rate hedge that we've taken out on the previous hedge -- sorry, previous debt. And that provided us with a gain of ZAR 12 million. As you would expect, tax increased by 86%, mainly as a result of the increased profits. However, the margin is down to 24.5% as the ZAR 75 million GBK benefit is not taxable. This enable us to produce profits for the period of ZAR 277 million or 140% increase on the previous base. We will now unpack the revenue for H1. The revenue breakdown provides a view of the elimination. So this is sales to our ultimate customer, the franchisee. Overall, we believe a very good performance driven by volume growth as well as pricing benefits, increasing revenue by 19%. If we compare our overall revenue to August 2019, our revenue increased by 11%. So we're back to the 2019 levels, but the mix have changed to a certain extent. If we look at manufacturing, reduced by 30%, and that's mainly as a result of owned reducing by 79% as indicated at year-end, as well, previously, certain retail products was sold directly from manufacturing. We've also, as indicated at year-end, closed the bakery. And the bakery contribution for the previous period was ZAR 38 million. Logistics revenue improved by 19%, driven mainly by the volumes and pricing, taking revenue to ZAR 2.3 billion. And 60% of our logistics revenue is as a result of our own manufacturing and the balance we procure from third parties. Company stores improved by 37% or ZAR 75 million contribution. And lastly, franchise fee revenue increased by 23% or ZAR 98 million, of which Leading Brands contribute 90% of the improvement. At year-end, that percentage was 94%. So we can see that Signature Brands is starting to increase their contribution to the revenue line. If we look at the segments, the segments, as you know, is the focus on this different revenue pools before eliminations. Revenue increased by ZAR 575 million as we have seen a strong recovery, as you can see from the percentages there across all segments. What's also positive for us, all segments are also higher than August 29. A key contribution to the segment increase is logistics with ZAR 366 million and Leading Brands SA with ZAR 86 million. We've also seen good positive growth in retail, which grew by 15%. If we look at the operating profit for the segment, the operating profit increased by ZAR 171 million with key contributors being Leading Brands SA with ZAR 54 million and logistics by ZAR 39 million. Leading Brands SA as well as logistics operating profit is also higher than what we had in August 2019. With this excellent performance, financial performance, we see in the balance sheet continue to be strengthened, and group gearing improved to 1.3x from 3x. We also see net asset value improving 67% to ZAR 7.83 per share. Property, plant and equipment increased mainly as a result of property and plant equipment acquisitions of ZAR 60 million. Intangible assets were negatively impacted by the Wimpy goodwill impairment of ZAR 31 million. Inventories increased 20% as a result of increased pricing, also stocking up on specific products like oil and beef and a change in the mix in support of the increased sales volumes. We've seen trade and trade receivables increasing by 4.6%, in line with the revenue increase. If we look at trade, lease and other receivables have decreased and the main reason for that is prepayments that have decreased by ZAR 15 million. As already indicated, with a strong cash performance that we've seen in these 6 months, we are able to do voluntary repayment of ZAR 150 million in the current period. Our cash flow, taking that into account, increased by 6% to ZAR 317 million, also taking into account that during the period, we paid the dividend of ZAR 200 million. We renegotiated our debt facilities, improving our margin as well as our tenor. This provides us now with the flexibility to operate comfortably, specifically in this difficult operating environment. Our debt for the period reduced by 26% to ZAR 1 billion. If we look at the lease liabilities. Lease liabilities decreased as a result of unwinding and cancellation of certain leases. Then lastly, we look at our trade and other payables, which is higher by ZAR 138 million, and that's mainly due to an increase in cost of sales items, which one would expect of ZAR 70 million; services, ZAR 15 million; marketing, ZAR 16 million; as well as CapEx of ZAR 9 million. If we unpack the CapEx for the period, we continue to invest in our key revenue drivers, which is Brands, as you can see from the numbers as well as Manufacturing. As indicated at the year-end, we plan to invest ZAR 238 million. But we indicated that we will be very circumspect in terms of the investment, taking into account the difficult operating environment. Based on that, we have refocused and focused on only the critical items and have decided to reduce the ZAR 238 million to ZAR 198 million. So in total for the year, we will reduce the CapEx investment indicated previously by ZAR 40 million. Key investments was in Manufacturing, where we invested in the source plant. We added two additional units to a value of ZAR 6.4 million. We also, as expected, made the investment in solar energy for ZAR 2.4 million, as well as a generator for ZAR 1.3 million, bacon press for ZAR 1.3 million and a cheese cooker for ZAR 1.7 million. So that is all in terms of increasing volumes going forward. If we look at AME that invested approximately ZAR 18 million, most of that spend was on company stores in Botswana. Our working capital reduced, mainly as a result of the increase in trade and other payables by ZAR 111 million or 15.3% lower than the revenue increase, in line with current activities, as already indicated. This was offset partly by an increase in inventory of ZAR 83 million, mostly as a result of increased pricing, change in mix and stocking up on certain items, which is in line with additional requirements and volumes. Then ultimately, the big question or answer is what happened with cash flow? It's important to note that the cash flow exclude restricted cash, and the opening cash balance relate to 1st March 2022. Our cash from cash operations increased by ZAR 233 million to ZAR 552 million. This enabled us to invest in our financing activities an amount of ZAR 165 million. Of which, as I indicated, ZAR 150 million relate to a voluntary repayment of our debt. We are also able to invest in CapEx and other investing activities of ZAR 71 million, of which ZAR 50 million relate to plant, property and equipment and a loan to our associate of ZAR 50 million. After all the investments, our cash is still higher than the last period, at ZAR 370 million or 19% -- ZAR 19 million increase compared to the previous year results. With this set of results we have, we believe that we've reset the base, and we can grow from here. It also enabled us to increase our interim dividend payout to a higher level. Thank you. And with that, I give over to Darren.

Great. Thanks, Deon. Much appreciated. And I think at this point, really just to remind ourselves that, I mean, as a business, we continue to be proud of the brands that we have. And our brands are consumer brands. And also not to forget that what we sell, people put in their mouth, and it's an important part of what we do and not to lose sight of that as we talk through some of the key themes in the business. We're proud of the restaurant footprint that we continue to grow as much as it has been challenging out there. We, as Deon has said, have just come out of a difficult period, but we're in a stable financial position and our overall financial position with appropriate gearing levels is really comforting and definitely allowing us as a business to make clearer decisions and really get our trajectory moving forward given the tough period that we've been through. We're comfortable that we've had a strong execution against strategy in the period, and we continue to gain momentum on that. We have had to focus on talent retention, and we are starting to compete for rare skills in the marketplace that we operate. As you will see through the presentation, our logistics strategy, which has been a key part of the last few years through a difficult period, remains on track. So we're confident around our execution against strategy in general. And in terms of our revenue recovery and expansion, so it's not just about recovery. We think we've got a balance that is building within the business, and that has really come across all markets and all divisions, as Deon showed you earlier. Everything is starting to perform again. Yes, there is still some lag and we have come out of a period where half of the period effectively was still under COVID restrictions. The continued growth for our Leading Brands is encouraging. The Leading Brands is at the front of what we do, and it really drives the front part of the business, and we all work in support of that in terms of the business. So quite a lot moving there, and we continue to be comfortable around that. And I'm really just -- that is driven by our franchise partners and the work that they do. I want to really just spend a little bit of time just talking about South Africa. And I think we must be mindful of the difficulties that we've been through there. We've continued to open restaurants. You're seeing different performance from Signature Brands given the tough time that they had, and our system-wide and like-on-like numbers are more aligned. So South Africa has performed particularly well. And again, life was different. At the back end of May, we had a very different mindset to where we are today. So the last 3 months of the financial year or 2.5 months of the interim period have been very good to us, and we're very grateful for that. And certainly, our franchise partners have seen a recovery in their business. The period has been overshadowed again by rising food prices, and that has definitely led to higher than historical menu prices, and I'll elaborate on that just now. And we mustn't forget besides COVID that in our peak season in April, our mini peak, we had the KwaZulu-Natal floods, which again put a damp on what was happening in the environment, not just in the case of any environment. I mean it is a destination for a lot of inland consumers, and we started to feel that pressure within the business given that we had prepared for a mini peak. I think it's important in the SA context to really try and look at the business through a geographical lens, and we have a provincial lens within our business. And you may look at the face of the graph and say, okay, well, it's 9 provinces, so what? I think what's important from our perspective is the nuances that are emerging in each of those provinces, particularly related to the governance and the local municipality challenges that we're starting to experience. So each one is quite unique. But however, there's quite a lot going on in there. And what would concern us, as an example, is where the system-wide number is lower than the like-for-like number. And there were 2 provinces that jumps out in. KwaZulu-Natal is really characterized by a lot of moving parts. So it would probably be -- take an hour to talk you through just what's happening in KZN and what has gone on. You've got a base there that is showing positive growth because you had closures in July of the previous year. So you've had an upside that's come through, but you then had the downside the April situation and what has happened there and the restaurants that have closed. We also have our casual dining restaurants that have bounced back nicely. So you've got an element there. But effectively, we are sitting with restaurant closures, and that is affecting the base and dropping that. Similar situation in the Northern Cape, although that is not necessarily characterized by factors outside of our control. Some of that is within our control, and we effectively have had a net reduction in restaurants there, which has put some pressure on us, and we haven't seen new store opening growth driven hard in that particular province. So there's some other challenges there. Whereas if you look at the Western Cape is a good example. We've seen a recovery in tourism. Our system-wide figures are supported by some new restaurant openings, which have looked particularly good and is driving that. As we've seen in the Northwest province, as an example, where we've had new restaurant openings as well as people returning to destinations like Sun City and getting out to some of the provincial towns and starting to get out and about, again, as you would see in the likes of Limpopo. So definitely a more normalized recovery in some of the provinces, but there are definitely challenges out there that one needs to work through. The Eastern Cape, as you remember, was quite suppressed the last time that we spoke, and we're seeing a nice element of recovery there, lots of positive around people getting back up to the coastal areas. We're also seeing some of the student towns recovering quite nicely, although that is then suppressed by some performance in the likes of the rural parts of the Eastern Cape where we are suffering not just with load shedding, but electricity reduction challenges and longer-term blackouts there that are suppressing some of that revenue recovery. So I think it's just important to continue to look at the SA market through the lens of provinces, and we certainly are very geographically focused in our business not just brand focused. So this is a new slide that I thought was important for those who understand the business, and I will dwell on it and probably dwell less on other things. But as we've always been saying through COVID, not are we only suffering from revenue loss of sales at restaurant level, but we've also been supporting franchise partners. And this shows how we've been doing that. So the 4 blocks effectively cover the 3 or the 4 financial periods in this period, and they relate to H1. So of the billable royalty that we talk about, as an example, if a franchise agreement says 6%, we may only be recovering 5.9% as an example. It will depend on the brand because there may well be structural changes in that agreement. But fundamentally, the contractual amount is the billable amount. And that is what we would be recovering here in terms of that. So the difference would effectively be a royalty break, as you would have seen in F '21, H1 where we had significant breaks. And that does exclude, obviously, April where there was 0 revenue. So that's not suppressing that number, that is the real support number. So what is encouraging is that we are effectively [ seeing ] Signature Brands back to levels that we last saw in the F '20 period in terms of our recovery. So that's encouraging. You can see the same effect on Leading Brands, which is a strong driver of the business, but we are not yet back to the H1 levels that we were in F '20. So there's a little bit of upside there. And of course, as restaurant revenues come back, it bodes well for our revenue recovery because we are then getting a percentage of a higher number. So again, another important journey in our recovery program, and that's easy to see on these slides. And same with AME, which as we've always been saying, is less impacted. In fact, we are probably recovering better than we were in H '20, but there are some regional factors that took place there where we're actually supporting some markets that were under pressure at the time. So we've actually improved our recovery. But again, you can see the dips that have come through. So time is always the winner, and you can always look back and this really gives you an indication of the kind of relief that we were providing to franchise partners through those difficult periods. Talking about food inflation. I mean we've really spoken a lot about that. And again, this is a continuation of a graph that we've been publishing and I think it's starting to become useful for you, particularly now that you see the movement in the menu pricing that's been driven by strong food inflation. So we are starting to see the impact of high menu prices that have come through. We are probably at our peak right now, although we do anticipate taking menu prices again in November. This is -- the index number is important to watch. And obviously, the previous years will drop off or the previous months would drop off, but we see these sustained levels of 10% not necessarily being sustained at this level. They will start to drop as we won't be taking those level of increases. However, you can still see that there's input price pressure driving through the system, and we are having to take menu price increases again, and that is going to push this. So I think it gives you a good sense of where the industry is at and what we're driving through on the business model. We think that we are holding price to franchisees particularly well. But again, remember, our menus would be driven with lots of fresh produce, which we don't necessarily have control of our back-end supply chain. To talk about AME specifically, I've taken you through South Africa. The AME market has probably been less affected. We're seeing the operating margin improve there. We've had a few nice victories. I mean the team are really, really working hard and getting back into traveling mode, getting out to new markets and really taking the innovations we develop in South Africa to these markets. It's also -- we're also happy to announce that we've finally opened Debonairs Pizza in Saudi Arabia after taking quite some time to do and also recently adding Oman, and we're confident about Debonairs Pizza being a growth driver in Africa. We're seeing the home delivery channels continue to grow in those markets, and we are taking our online platforms for Steers and Debonairs into markets as we've done in Zambia. We are, however, seeing project delays due to equipment shortages and shipping challenges. We do support Africa out of South Africa, and those challenges have been particularly notable in this particular market and the recent port strikes haven't helped that situation. So we are sitting with restaurants that are waiting for key equipment to open, particularly in Nigeria at the moment. The U.K. market is the toughest I've ever seen in my time in the business, really characterized by low consumer confidence and spending, and we are anticipating a very, very tough H2 in the U.K. market, just as there was positive around sit-down sales recovering at the expense of home delivery, but we were gaining more out of sit-down. So there was a positive story there and really going to be facing some tough challenges, but absolutely confident that the team there have got a handle on it, and we'll understand how we can walk and talk our franchisees through this particularly challenging period. Just moving on to the back end of the business as we head to supply chain. I think given recent announcements about our potential acquisition of the Midrand campus, I thought it was important to bring back the communication around Project Decade, which we have communicated on previously. And really, if you look at that block, I think, to the right, the next steps in the future is the important part as we've got quite a lot of activity in our business. We are eagerly awaiting the move of our new depot -- to our new depot in KZN in the mid-November as well as the acquiring of our current Midrand campus to be able to reconfigure and expand it and then move our frozen depot to that particular new plant, as well as roll out the new WMS system to all of these facilities. That WMS system will be implemented first in KZN in the coming weeks. So there's quite a lot there, and I think you're going to be seeing quite a lot of activity around this. And again, I felt important to bring this slide back for investors to be able to question us on some of the capital allocation in this particular regard. Our manufacturing business has really shown strong revenue recovery, and thanks to increased volumes, which has been important. I think one would quite imagine that, yes, maybe you're getting a halo effect from inflation, but we are comfortable that this growth has been underpinned largely by volume recovery. The cost base has been well managed. The team has really worked hard focusing on operational efficiencies and waste reduction, which has been a key aspect not just from an ESG perspective, but from a margin perspective. However, whatever we try and do has made it difficult because load shedding and water shortages remain challenging. These sustained periods of load shedding, particularly over weekends, have made it difficult for us to recover any lost time in the week and we are having to continue to spend unplanned CapEx on new generators. The Gauteng Bakery Plant is in our comparative base, if you look at the revenues, but it's not in these volume amounts that I've been speaking about here, and Deon alluded to that earlier. On logistics, I mean, the team have really gone through a tough period, but are starting to reap the rewards of just continuing to provide great service to our franchise partners. The trading conditions have improved, and that's lifted the revenue, supported by the strong case volumes. The rationalization in SKUs is important because we've got 1,406 SKUs across those DCs. At the end of February 2020, that number is 1,690. So we've definitely seen the benefit of the menu rationalization in logistics and starting to be able to utilize our pallet spots a lot better, and that is really talking to the front end and the back end working together in the business. On retail, we continue to be excited about this. The numbers that you're seeing don't support that because we've had to take some stock write-offs on some house brand products that we supply this year, and we are rectifying that, particularly contractual relationship. So I think that, that overshadows the hard work and the efforts that have gone in, and it doesn't certainly undermine the strong demand for our brands and the positive response to our new consumer lines. So we still remain confident that we're going to be launching a total of 12 new products this year. We've also seen some headwinds on coffee pricing, which is also the bulk of the stock write-offs that we've seen in the business. ESG remains a critical part of what we do and how we do it, and that's most important. And we continue to be mindful of the pressures that we are all under as citizens of the world, and we believe that we continue to embrace sustainability practices. And this is certainly going to improve the way we look at the business, and we continue to drive various initiatives, as we put on the screen there, and continue to bring that thinking to our business. Can we do better? Yes, we can do better, and we will continue to drive that part of the business hard. And very comfortable that we have a Board that is very supportive around the initiatives that we take in this regard. So we have H2 ahead of us, and we are into some of it already. We have seen a fairly subdued September. And thus far, October is also looking subdued and excited about month-end ahead of us. What we are nervous about is that we've historically not had load shedding over peak holiday season. There's always been some early December load shedding. And it's not clear whether we are going to have a December characterized by load shedding given we know that electricity demand does reduce. The menu pricing pressures have not abated, and all of our brands will be adjusting pricing in November. And we need to understand that consumers can only take so much, and we're keeping that to a minimum. We are anticipating and keeping our fingers crossed about high level of travel over peak given the low demands in 2021, thanks to COVID. And also, we think that with flat prices that there will be a lot more road travel. We hope that the easing fuel price will translate into a movement of people. We don't quite know what the December price will be given the exchange rate challenges. But with fossil fuel prices coming down, we are hopeful. Wimpy UK is going to have a very tough H2, particularly as energy prices feed through to our franchise partners. So we're bracing for that and doing what we need to. We are excited about opening some key Mr Bigg's and Debonairs Pizza stores in Lagos. They are standing, ready to open right now and are waiting for some key equipment that needs to be shipped out of key markets, which has been delayed due to various port delays and container delays, equipment delays and a real concoction of problems that have delayed that. But we believe that will set the tone for the future of the UACR business. Even more excited to open our new logistics facility in KZN and get that operational. The team are waiting. We're in the throes of doing some key things and waiting for one or two software integrations to conclude on the new WMS system. And then you would have seen the announcement, and I spoke about under Project Decade the acquisition of our Midrand campus. So trying to get all those conditions precedent out the way and be able to acquire the campus so we can get the work done that we want investing in solo and various other projects that need to take place as well as investing in our new frozen facility. So we've got quite a busy H2. We remain very optimistic about H2 despite some of the challenging environments. In terms of our priorities, and really just recapping on what we told you we would be doing this year and really doing some honest self-reflection. On the financial side, we're all green there. We think we are meeting our commitments. On growth, we continue to be growth-orientated. We are undertaking a continued review of Signature Brands and whether we can get the growth from that. And I think having -- waiting for the COVID recovery is the right thing to do and giving that team all of the resources they need to make sure that, that portfolio is a growth driver for Famous Brands into the future. And I think certainly after H2, we will have a much better perspective of where that business is netting out. And you see in the numbers the strong recovery in H1. In terms of operational, again, we think we are achieving the commitments that we've made in terms of what we want to do and what we've presented to you in our various plans over time. And we are making good progress. We do need to improve on our digital platforms. We are doing lots of work on that, but the pace of change in that industry is fast, and we need to make sure we're keeping up. So I think that there's work to do there still. We're not necessarily letting ourselves down, but we are in a fast-paced industry, and we need to up our game continually and execute better on that side operationally. So in closing, we really are happy and comfortable about our revenue recovery, and that has really translated into a strong financial position for us and is really giving us the headroom and the space that we required to execute our strategy successfully. So we are really happy to be in this place given where we've been, and we are comfortable that we're going to meet those priorities. So that really puts us in a great space and has really given us the opportunity to drive forward and to be in this position to present these results. So before I close out, I think it's appropriate to move on to questions-and-answers. I did look at Ntando earlier and he had a bit of a rough smile on his face. So I'm bracing myself for these questions. But hopefully, with Deon, he can help us there. So over to you, Ntando.

Yes. Thank you, Darren, and good morning to all. I mean, as you all know, this is the most exciting segment after the presentation, mainly because it gives the executive team the opportunity to engage with the audience. So we do have a few questions to go through. So without any further ado, obviously looking at time limitations, I'll just jump into that. I'll take the first question from [ Zaid ] from Aeon Investment Management. With the sale of properties and sale of shares from the initial founding family, does this indicate that the founders will have less involvement with the company in the long term? Can you shed some light on that?

Yes. Thanks, [ Zaid ]. Look, I can't talk on behalf of the founders. I do know that they're very passionate about the business. And they've always been our landlord. I don't think it would have any bearing on their investment. But again, I can't talk for them. They are very separate transactions. They continue to be shareholders and have been since the company was listed. So the logic of the sale of the property makes more sense for us probably than for them. It was a very difficult situation for them to be governed by related party rules, but we've got to grow our logistics business and make improvements. So it really just makes logical sense. I think it would be wrong to try and draw any connection between the 2 in fairness to themselves. But again, I can't speak on their behalf.

Thank you, Darren. I'll take the question from [ Ahmed ] from Denker Capital. How should we think about margin development in manufacturing and distribution? We're still well below pre-COVID levels. Are you seeing significant room for improvement in H2?

The answer to the end part is, yes, improvement in H2. I mean, significant is, I suppose, a relative word. So we are seeing improvement. I think the way you can think about that is, I mean, we're still comfortable testing drive towards 3% on logistics. I mean that is going to be a little bit bumpy, but that's why we talk about Project Decade so openly. As an example, when you move your KZN facility, you are going to have one-off costs that are going to suppress the margin in that period. But you're going to get more efficiency going forward, but you are investing capacity ahead of the time. But we're comfortable with driving there, and that would get you towards pre-COVID levels. We're also comfortable driving the manufacturing margin. We're not scared of a 15% number. However, I do need to be cautious in that the mix is changing within manufacturing as we rationalize certain facilities where we need scale. So the bakery, as an example, was probably a high revenue business but at a fairly low net margin business, but it was a good gross margin business. So there's a change in that mix. But we're not uncomfortable about driving forward to those levels on manufacturing either.

Thank you, Darren. I think probably a follow-on question from [ Thomas ], just linking it to the margin conversation, from Perpetual Investment Managers. I mean is there a risk that you will need to permanently reduce royalty rates as franchisees operate in a tough, low growing economy and their profitability also being impacted from the rise of the food aggregators?

I think the short answer is, no, we don't think there's a risk. But I mean that doesn't mean we are close to trying to understand the business model. I mean sustainability of franchisees is first and foremost, and our business model as a franchisor, it's critical that, that sustainability is there. I think if you look at the logic of those slides I showed you, it just shows you that, that revenue can recover, and that pre-royalty rate of H '20 is the same rate. So we haven't seen any erosion of the rate that we get. I mean the recovery on that rate, you saw the dip and we're nearly back to those levels. However, we understand it's an evolving market. We understand the pressure from various channels, delivery being less profitable, but it's not necessarily a disastrous channel. So yes, we're mindful that it's something we watch. We engage with franchise partners all the time. But do I see a reduction in those rates at this stage? No. And I think that there's some comfort around our competitive set too and that there is a place for franchising, particularly in the South African and African marketplace. And all franchisors operate on that similar model. So we're not seeing any noise coming out of competitors either around those margins being under pressure.

Okay. Thanks, Darren. I mean probably this is a question more for Deon from [ Thomas ], again, Perpetual Investment Managers. What is the CapEx outlook for the next few years? I mean are you able to shed a view on that?